Deadline Looms for Business Interruption Insurance Coverage COVID-19 Claims

Counsel who seek to benefit from any coverage recognition by their property insurer to secure business interruption loss reimbursement arising from COVID-19 events must make a critical decision soon. Drafting a complaint in an appropriate forum is critical before the deadline. For most property policies, that is 3/19/2022[1]—two years from civil authority shut down.[2]

A recent decision evidences why coverage pursuit is worthwhile. In Live Nation Entertainment, Inc. v. Factory Mutual Insurance Company,[3] the court held that allegations in which “infectious respiratory droplets, which transmit COVID-19, are physical objects that may alter the property on which they land and remain” could be found to cause “physical loss or damage.”

Live Nation alleged that it owns and operates over 100 indoor theaters and clubs, and over 50 outdoor amphitheaters in the United States that had exposure to COVID risks. Live Nation asserted that it incurred extra expenses in working with health officials to implement safety precautions and protocols necessary to allow employees to return to work and have public return to its locations. Live Nation also reported that 62 employees across 35 of its more than 150 venues tested positive for COVID-19, and it incurred additional expense for the cleanup, removal, and disposal of COVID-19 from its insured property.

The court agreed, denying Factory Mutual’s Motion to Dismiss Live Nation’s complaint, concluding that:

[T]he presence of COVID-19 constitutes a “physical intrusion that compromises the physical integrity of property.[4] . . . In connection with the Motion, such issues are presented as to . . . the entry of COVID-19 on the relevant properties, and the necessary extent of responsive remedial measures, including cleaning.

Insurers routinely refuse to address lengthy coverage analysis. Presumably, they have decided that unless a suit is filed the exercise to respond is not worth the cost of responding. Placing the obligation on policyholders to initiate suit saves money. But that response leaves insurers exposed to bad faith claims. In some jurisdictions, this can be extremely problematic where remedies for an insurer’s failure to properly analyze coverage are robust.[5]

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[1] Insurance policies typically include a two-year limitation for such filings. See, for example, Property Choice Conditions and Definitions, Form PC 00 90 01 18, section A.11.b. from The Hartford.

[2] No California court has yet applied the tolling of Emergency Rule 9 to an insurance agreement.

[3] Live Nation Entertainment, Inc. v. Factory Mutual Insurance Company, Case No. 2:21-cv-00862 JAK (KSx), 2022 U.S. Dist. LEXIS 25627, *7 (C.D. Cal. Feb. 3, 2022)

[4] Id. at *17, citing Pez Seasfood DTLA, 514 F. Supp. 3d 1197, 1204-1205 (C.D. Cal. 2021).

[5] Estate of Parker v. AIG Life Ins., 317 F.Supp.2d 1167, 1171-72 (C.D. Cal. 2004). (“A first party insurer owes a fiduciary duty to its insured, requiring it to protect the insured's interests as if it were its own. . . . An insurer must clearly articulate its reasons for denying coverage based on the exclusion and demonstrate that its interpretation is the most reasonable interpretation of the exclusionary clause.”)